EUR:Debt crisis threatens entire euro project

The eurozone debt crisis and persistent overspending by member states could jeopardise the ultimate success of the single currency, a new study published by the European Central Bank (ECB) warned on Thursday.

“Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU (European Monetary Union) itself," said the study, which was co-authored by the ECB’s outgoing chief economist Juergen Stark.

Stark announced in a shock statement earlier this month that he was resigning from the central bank’s executive board in a move ECB watchers saw as a sign of deep differences among EU and eurozone policy makers over the way out of the current debt crisis.

Stark has been critical of the ECB’s controversial program of buying bonds of those countries, such as Greece, who find themselves unable to drum up financing on the markets.

In the 23-page research paper entitled The Stability and Growth Pact: Crisis and Reform, Stark and his three co-authors proposed that countries which do not abide by the agreements on debt should surrender their economic powers to the European Union.

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All planned deficits in excess of 3.0 per cent of gross domestic product (GDP) should have to be approved unanimously by euro area governments and any country with an excessive deficit should face automatic fines.

And any country requiring assistance from fellow member states should “be placed in financial receivership if its adjustment program fails to remain on track, with the planning and execution of budgets requiring the agreement of the appointed financial receiver."

So far, three eurozone countries, Greece, Ireland and Portugal, have needed to be bailed out by the EU and the International Monetary Fund.